UNDERSTANDING DIGITAL CURRENCY
Up to now, you already know that Bitcoin is the largest digital coin by capitalization. Altcoin, on the other hand, is any decentralized digital currency apart from Bitcoin. Cryptocurrency is a general name for Bitcoin and altcoin.
Cryptocurrency is a digital or virtual currency that is secured by cryptography. It is based on a network that is distributed across a large number of computers, which makes it nearly impossible to counterfeit. This decentralized structure or network allows them to exist outside the control of governments and central authorities.
The word “cryptocurrency” is derived from the encryption techniques, which are used to secure the network. Cryptos are applications of blockchain – a decentralized network. Cryptocurrencies allow for secure online payments, which are denominated in terms of virtual “tokens.” The tokens are represented by ledger entries internal to the system. “Crypto” is a term for describing the various encryption algorithms and cryptographic techniques that protects these entries such as public-private keys and hashing functions.
TYPES OF CRYPTOCURRENCY
Bitcoin was the first blockchain-based cryptocurrency and still remains the most popular and most valuable to date even though there are many alternate cryptocurrencies with various functions and specifications, some of which are clones of bitcoin while others are new currencies that were built from scratch. Some of the competing cryptocurrencies spawned by Bitcoin’s success include Litecoin, Peercoin, Namecoin as well as Ethereum, Cardano, and EOS among many others. Of the aggregate value of all the cryptocurrencies in existence, Bitcoin stands tall as it represents more than 68% of the total value.
ADVANTAGES AND DISADVANTAGES OF CRYPTOCURRENCY
Cryptocurrencies hold the promise of making it easier to transfer funds directly between two parties without the need of a trusted third party or intermediaries like a bank or credit card company. Transfers are instead secured by the use of private keys and different forms of incentive systems like proof of work. Fund transfers are completed with minimal processing fees allowing users to avoid steep fees charged by banks and other financial institutions. In modern cryptocurrency systems, a user’s wallet” or account address has a public key while the private key is known only to the owner and is used to sign transactions hence safety is guaranteed.
However, the semi-anonymous nature of cryptocurrency transactions makes them well suited for a host of illegal activities such as tax evasion and money laundering.
Volatility is another challenge associated with most cryptocurrencies. Bitcoin, for example, has experienced some rapid surges and collapse in value. At a point, it climbed to $19,000 per Bitcoin and then drastically drooped to around $7,000n in the following month. Some economists still cast doubt on cryptocurrency and its success in the future when they consider the volatility. However, the volatility makes cryptocurrency trading fun.
Despite the few challenges associated with cryptocurrency, future success is almost certain. Digital coins such as Bitcoin, Ethereum and XRP, have withstood the test of time and are seeing more adoption into all spheres of the world’s economy.